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Inflation remains soft

The inflation data today did not reveal any horrors, so the Reserve Bank has the 'room' to cut interest rates should it so wish.

The headline rate of CPI was only 0.4% for the quarter, leading to a year-on-year figure of 2.4%, or 2.3% seasonally adjusted.

This is broadly in the middle of the targeted range of 2-3%.

Source: ABS

When the one-off effect of the carbon tax is stripped out, the headline result might be considered to be at the bottom of the target range at close to 2%, which might imply that an interest rate cut is in the pipeline.

However, an interest rate cut is not a done deal.

The weighted median and trimmed mean readings, which are the Reserve Bank's preferred measures as those which look to strip out the impact of outlying readings and thus provide a more balanced result, showed a slightly different picture.

Source: ABS

Year-on year, these measures came in at 2.2% and 2.6%.

While these figures also suggest that there is room for a cut, some exercise might be cautioned as so-called 'tradeables inflation' may be expected to increase as a result of the Australian dollar having fallen from above 106 cents towards the bottom of the 90 cent range.

The other news which may have a bearing on the August interest rate decision today was a weaker-than-expected flash PMI reading from China.

On balance, futures markets remain undecided, and price in a cut as around a 6 in 10 chance, while the dollar took a while to make its own mind up, before settling on something of an each way bet sitting at around 92.5 cents.

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The two-speed nature of the housing market continues to be emphasised with dwelling prices in Adelaide falling by 2.9% over the last quarter, while those in Sydney increased by 3.5% according to RP Data.

Yield-chasing investors have been tipping Adelaide for half a decade, but they got it wrong.

In fact, throwing a pin at an Australian property dart board would on average have scored a much better result.